David Cameron urged European leaders to force their banks to disclose their
exposure to Greek debt as fears over the sovereign debt crisis disrupted
markets again.

The Prime Minister also called for national governments to ensure that banks are properly capitalised and prepared for more shocks.

Speaking at the European Union leaders' summit in Brussels, Mr Cameron said: "All European countries need to use the time that we have to strengthen banks and bank balance sheets and make sure they are meeting all of the requirements so that they are strong and can withstand any problems and difficulties."

He added: "Banks right across Europe that have exposure to Greece... every bank needs to make absolutely clear what its exposure is."

The euro, which was also boosted early on by a better-than expected-business sentiment survey from Germany, fell sharply. The cost of insuring Greek debt rose again, unsettling investors. Fears of a banking crisis were exacerbated when the Italian stock exchange suspended trading in a group of its banks because of "high volatility."

Trading in the shares of UniCredit, Intesa Sanpaolo, Banca Poplare di Milano and UBI Banca were suspended in the morning after some of the stocks fell more than 3pc.

Silvio Berlusconi insisted that he was "not worried at all" by the threats from rating agencies to downgrade Italy's banks or its sovereign debt. Moody's has placed Italy on review and warned that it will review 16 highly-rated Italian banks and two government-related financial institutions in the next few weeks.

The initial optimism traders took from progress with Greece's austerity talks over-night, was wiped out. Traders were concerned that the package would be too tough for Greece to achieve - even if it is approved in Athens next week.

In Brussels, Angela Merkel, the German Chancellor said: "It's going to be a very difficult road for Greece. Look at the privatisation requirements that need a certain amount of time to be realised. The Greeks are very much aware of this."

On Tuesday Greek politicians will vote on a radical austerity package that will bring in €28.4bn (£25.2bn) of spending cuts and tax rises over five years. The package has caused widespread demonstrations and strikes across Greece.

International authorities have said they will withhold a vital €12bn in financial aid until the measures are passed. Greece needs the cash injection, which is the fifth tranche of the €110bn bail-out agreed last year, or the country will run out of money in mid-July.

Greece's ruling party had 155 out of 300 votes in parliament in a vote of confidence last week. The lead of the opposition party has already said he will vote against the package.

However analysts have warned that Greece, which has debts of €360bn, is increasingly likely to default on its repayments within months anyway.